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A MUST KNOW FOR STUDENTS

CA Mohit Mohan (c.a. profession) (557 Points)

05 July 2009

Why Goods destroyed by fire is credited to Trading account ? Putting it on credit side will increase Gross profit.........everyone know SURPRISING...... evryone knows its put back on the debit side of P and L account to decrease Net Profit..,. but Whats the FUNDAA behind putting it on the credit side of Trading account..

Why abnormal Loss is shown on credit side of Consignment account? Putting it on credit side Increase Profit.... SURPRISING........

I will give answer with LOGIC with PROPER EXPLANATION.... But students should try giving me answer.... This question is only for students ..... This is the basic question every student shud know.. thats why i am posting here......

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11 Replies

Niral Gangar (Management Consulting Investment Advisory CA Practice) (100 Points)
Replied 05 July 2009

It is posted on Credit side to nullify the effect of purchases recorded as they cannot be sold in the open market at a normal selling price. if these were sold at normal selling price then it would have earned the same rate of GP as other sales earn.

Lakshmikant (CA pcc student) (521 Points)
Replied 05 July 2009

those goods are salvage & you need to show that stock though it may not yield the same market price (sales price). & when you show loss on profit & loss debit side & insurance claim in the asset side of balance sheet , the balancing amt shud be at the credit side only.

Durga (Articled assistant) (22 Points)
Replied 05 July 2009

Goods destroyed by fire,abnormal loss on consignment are items credited to Trading a/c and debited back to P&l A/c:since the loss is abnormal i.e.not occured in other firms in the same industry.so if trading a/c i sdebited directly for the loss then the Gross profit ratio will get effected ;i.e.it cannot be compared with GP Ratios of other firms.So it is necessary to credit trading a/c and debit the P&L A/c for the loss so that the Gp ratio remains as if loss had not occured.

supriya (student) (159 Points)
Replied 05 July 2009

Basically trading account is prepared to show how much profit / loss is made by the firm from trading of goods. So if goods purchased are lost due to fire this loss is not due to trading of goods and hence it is not charged to trading account. This loss is shown in P&L A/c. Same is the case with Consignment A/c where consignment account is prepared to shown profit / loss occured by consigning the goods. Correct me if i am wrong.

CS Asmita Mehta (CS) (308 Points)
Replied 05 July 2009

As far as my knowledge is concern every CA student already know the answer of this quection........

(Guest)

why create so much fuss for this question... As though this is the first question that s going to this november exam..

also the title for this topic is so misleading.. I thought it would be some good info.. waste of time..

Ankit Shishodia (student) (46 Points)
Replied 06 July 2009

Originally posted by :rahul
"	why create so much fuss for this question... As though this is the first question that s going to this november exam.. also the title for this topic is so misleading.. I thought it would be some good info.. waste of time..	"

CA.Shaleen Srivastava (CA , CWA*, Bcom(H)) (1999 Points)
Replied 06 July 2009

why create so much fuss for this question... As though this is the first question that s going to this november exam..

also the title for this topic is so misleading.. I thought it would be some good info.. waste of time..

Santhosh Poojary (SIEMPRE AHÍ PARA TI) (15607 Points)
Replied 06 July 2009

VERY BASIC LEVEL OF ACCOUNTANCY...........

Aashish Dinanath Tripathi (Articled Assistant and NCFM(CMDM)) (233 Points)
Replied 06 July 2009

To show the actual qty of stock (in other words it is shown as sales with lesser value) and the loss on such fire stock is trf to P&L (dr) to acknowledge the loss and any scrap value if realised is treated as an abnormal income. Please dont post such stupid topics and not atleast With such titles. Remember we are CA's not MBA's that we go after presentation.

CA,CS, ICWA Inter MANOJ KEDIA (Working With Educomp) (99 Points)
Replied 10 July 2009

dear sir it may be good question but here is chartered who are expert in accountancy

soluation

because we are included this amount in purchase figure at dr side and because this goods can not be sold so it would be shown in cr side of trading a/c so Effect Nulify

now if there are no salvage value it will be booked a loss in p & L

i should not give answer because it q is only for students but level Of question...............................

If any query please ask